Symantec: Storage, Other Businesses Could be Divested, Says BMO

By Tiernan Ray

Shares of security technology vendor Symantec (SYMC) are up 68 cents, or 3.7%, at $18.87, and earlier rose as high as $18.94, after BMO Capital Markets’s Joel Fishbein raised his rating on the shares to Outperform from Market Perform, but cut his price target to $22 from $24, writing that the abrupt ouster of CEO Steve Bennett last week means the company might increase its value by divesting some businesses.

According to Fishbein, Symantec could get rid of operations such as its enterprise storage unit:

We think all strategic options are on the table including the sale or potential divestiture of underperforming assets. We are lowering our estimates to what we believe are trough levels. We see M&A or divestiture as likely scenarios owing to the secular decline in endpoint (>50% FCF) and storage businesses (>30% FCF), which combined represent a majority of the business. In that light we done a sum-of-the-parts valuation that shows a total value of Symantec of $21-$23. Further, acquisition multiples of mature infrastructure companies have bottomed at 2.8x sales versus Symantec’s current 1.7x 2015 EV/Sales [...] We would not be surprised if Symantec were to more aggressively consider divesting some of its underperforming assets, with the most logical candidates being Altiris and storage management (Storage Foundation). We believe an acquisition of the overall company is unlikely owing to its disparate product offerings and secular declines faced in the endpoint and storage business. However, we see value creation possibilities, and proceeds from divestitures could be used for M&A to bolster the company’s products or returned to shareholders in dividends or buybacks.

Fishbein offers the following table of recent acquisition valuations by way of reference (click for larger image):

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There are 2 comments

MARCH 24, 2014 5:03 P.M.

Anonymous wrote:

this analysis is pretty much pure speculation and had barely factored into todays recovery. the stock was oversold and ready for a bit of a bounce. no one but you attributes it to BMO (not even sure anyone follows them actually...)

MARCH 24, 2014 6:43 P.M.

TruthBeTold wrote:

The analysis is pure hype to try and prop shares. There is zero chance of any meaningful divestiture, which makes the headlines misleading. Deeper in the article it discusses smaller pieces, which indeed could be divested, however they are so small it will have no major impact and the proceeds would HAVE to be be used for M&A in a desperate attempt to bolster deteriorating fundamentals and legacy product erosion.

This "upgrade" from BMO is hardly anything beyond a hype maneuver, there is more downside risk remaining than upside in the near and mid term. Long way from any meaningful long term turnaround, in fact it may never happen as it has been almost 10 years the company has failed to do so.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.